Swiss central bank announces negative interest rates to stem flight into franc

ZURICH, Dec 18 (Reuters) – Switzerland’s central bank said it would start charging banks for deposits in francs for the first time since the 1970s, hoping to stem a flight to the safe-haven currency driven by concern over the euro zone and Russia’s deepening crisis.

In a surprise statement on Thursday, the Swiss National Bank (SNB) announced it would impose an interest rate of -0.25 percent on the portion of so-called “sight deposits” – cash commercial banks and other financial institutions hold with the central bank – above a certain threshold.

It will come into effect on Jan. 22, when the European Central Bank holds its next meeting, fuelling speculation the ECB may start full-scale money printing then, though SNB Chairman Thomas Jordan played down the possibility of any connection…

…Growing worries that plunging oil prices may send the euro zone into a deflationary spiral were already expected to push the ECB to buy sovereign debt early next year, piling pressure on the franc in recent weeks.

Russia’s rapidly weakening rouble and political upheaval in Greece pushed the franc up further, threatening Switzerland’s export-driven economy, which sends the lion’s share of its goods to the neighbouring euro zone.

“Rapidly mounting uncertainty on the financial markets has substantially increased demand for safe investments,” Jordan told a news conference in Zurich. “The worsening of the crisis in Russia was a major contributory factor in this development”…

If too many people pile in and buy Swiss francs, it drives up the exchange rate and makes their exports more expensive.